Published June 1, 2012 | June 2012 issue
Individuals who own shares of bank holding company (or bank) stock often consider transferring such shares to a trust for estate planning purposes. Since a trust is a separate entity, a transfer of bank or bank holding company shares to a trust can raise issues under the Bank Holding Company Act (BHC Act) and/or the Change in Bank Control Act (CIBC Act).
If the Federal Reserve finds that a trust is being operated as a business trust, it will be considered a “company” as defined by the BHC Act and potentially a bank holding company, depending on the number of shares it plans to acquire. Usually, individuals want to avoid a determination that a trust is a “company” due to increased regulatory compliance.
Generally, a trust is presumed not to be a “company” if the trust:
In addition to these factors, the Federal Reserve reviews the nature and value of assets in the trust as well as whether the trust engages directly or indirectly through ownership in any business activities to help determine if it is being operated as a business trust.
Any person acquiring control of a bank holding company or state member bank must give prior notice to the Federal Reserve. This requirement applies to trusts and their trustees. A notice under the CIBC Act will be required when the proposed ownership is 25 percent or higher or 10 percent or higher and no other shareholder controls more shares.
The Board of Governors has an exception to those requirements for certain transfers to testamentary trusts if the following factors are met:
Because a trust’s status under the BHC Act and CIBC Act requires a close review of the trust instrument and its assets, we encourage individuals to contact staff of the Applications section prior to transferring shares to a trust. We can then decide if the circumstances warrant a review of the trust to determine whether any issues are raised under either the BHC Act or the CIBC Act. Our contact information is available here.